How Brexit will affect the tech sector

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There is still an appetite for deals, as shown by Softbank’s decision to buy ARM Holdings

This week we continue our look at how Brexit will affect Britain by talking to Hugh Campbell of investment bank GP Bullhound.

GP Bullhound specialises in advising technology firms, either by raising money to enable them to grow or arranging their sale to other companies. It has been running for nearly 17 years and employs around 75 people in eight offices around the world, including London, San Francisco and Paris. Campbell is a managing partner and co-founder of GP Bullhound and heads the firm’s Manchester office.

Campbell accepts that “there were some initial concerns immediately after the referendum” and that “the risk profile of UK firms has definitely gone up”. However, two factors have cushioned the blow.

Firstly, there is a “wall” of capital available looking for investments. At the same time, “any negative effects have been countered by the fall in the value of sterling” which “means that UK assets are now 15%-20% cheaper”. But there is still an appetite for deals, as shown by the Japanese firm Softbank’s decision to buy Cambridge-based chip designer ARM Holdings for around £24bn, a deal which was completed in September.

Of course, just because the immediate impact has been relatively minor, there is no guarantee that the long-term effects will be similarly mild. Campbell warns that a “hard exit” could have “serious economic repercussions for the wider UK economy”. What’s more, if there is a downturn, this will inevitably have an effect on technology firms, “since there will be less demand for their goods and services from the UK customers”. So if the wider British market declines, it is safe to assume that the valuations of tech companies are likely to follow suit.

Another big issue is the probable end of financial “passporting”, which allows UK financial firms to automatically sell their services in the rest of the EU. Campbell notes that GP Bullhound is in a good position because it already has offices in Berlin, Paris and Stockholm. As a result, any changes won’t affect it that much. However, things may be different for those that don’t currently have a presence in the EU, who will face a lot more “red tape”. Still, he thinks that some of the bleaker predictions about the financial sector being badly hit are “extremely unlikely”.

Turning to the wider technology sector, Campbell also notes that many European cities are trying to persuade British companies to relocate, with Berlin launching “an aggressive marketing campaign to sell the city as a better location than London for start-ups”. He also thinks that the probable end of free movement “will make it much more difficult” for tech firms to hire staff. Another risk is the uncertainty about the status of both EU citizens already in the country and those who enter before Britain’s formal exit. He warns that this uncertainty “could do a lot of damage” if existing staff quit their jobs and return home.

Another problem with unduly restricting immigration, which hasn’t received as much coverage in the debate, is that immigrants aren’t just a source of labour. They are wealth creators in their own right. Indeed, all the evidence suggests that “the UK greatly benefits from EU migrants setting up businesses”. One prominent example is the financial technology firm Transferwise, which was set up by two Estonian nationals, Kristo Käärmann and Taavet Hinrikus, who were trying to find a way to send money from the UK back home. At the very least, Campbell wants to see “a smooth process for highly skilled workers” put in place.

Merryn

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